Stefán Broddi Guðjónsson, Head of Arion Bank Research

IntraFish Seafood Investor Forum

Reykjavík 4. October 2018

So close, yet so far

awayWhy institutional investors and fisheries

companies should fix their broken relationship

A less fishy economy Not a source of growth but of solid performance. In the beginning the Icelandic Stock Exchange was by and large a fish market

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Composition of Icelandic exports 1990 - 2018

Seafood Aluminum Tourism Other

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

1992 1995 1998 2001 2004 2007 2010 2013 2016

Market cap of listed fisheries companies in Iceland

– of total stock market

Sources: Statistics Iceland, Arion Bank Research

Relative value of fisheries sales halved in 15 years

3

Total assets around 10% of domestic corporate assets

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Sales of fisheries companies - of total sales of Icelandic companies*

0%

5%

10%

15%

20%

25%

Assets of fisheries companies – of total assets of Icelandic companies*

Sources: Statistics Iceland, Arion Bank Research. Estimates are Arion Research´s. *Excluding financial firms and pharmaceuticals

Long term funding of fisheries companies equals 22-24% of GDP

4

Around 10% of all corporate long term financing allocated to fisheries companies

0%

5%

10%

15%

20%

25%

Total long term financing of fisheries companies

- of total long term financing of domestic companies*

-5%

0%

5%

10%

15%

20%

25%

30%

Total long term financing of fisheries companies – of GDP

Total equity of GDP Long term debt of GDP

Sources: Statistics Iceland, Arion Bank Research. Estimates are Arion Research´s. *Excluding financial firms and pharmaceuticals

Money well spent

5

Around 12% of all shareholders equity is in fisheries companies. In the past two years fisheries companies have outperformed the rest of the economy

-20%

-10%

0%

10%

20%

30%

40%

50%

Equity ratio of Icelandic fisheries companies

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

Total equity of fisheries companies - of total equity of Icelandic companies*

Sources: Statistics Iceland, Arion Bank Research. Estimates are Arion Research´s. *Excluding financial firms and pharmaceuticals

Predominantly private companies

6

Small institutional ownership and foreign ownership negligible

Fisheries company* OwnershipHB Grandi hf. Publicly listed

Samherji Ísland ehf. Private

Síldarvinnslan hf. Private

FISK-Seafood ehf. Owned by the local Coop

Þorbjörn hf. Private

Skinney-Þinganes hf. Private

Vinnslustöðin hf. Private

Vísir hf. Private

Rammi hf. Private

Útgerðarfélag Reykjavíkur hf. Private

Ísfélag Vestmannaeyja hf. Private

Hraðfrystihúsið - Gunnvör hf. Private

Nesfiskur ehf. Private

Eskja hf. Private

Gjögur hf. Private

Jakob Valgeir ehf Private

Ögurvík ehf. Private

Loðnuvinnslan hf. Owned by the local Coop

Bergur-Huginn ehf. Private

Útgerðarfélag Akureyringa ehf. Private

0%

10%

20%

30%

40%

50%

60%

1992 1995 1998 2001 2004 2007 2010 2013 2016

Share of TAC held by listed companies

Sources: The Directorate of Fisheries, Arion Bank Research *20 largest fisheries companies by quota share in Icelandic waters

1999 – 2000: 24 listed Icelandic fisheries companies

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Básafell Fiskiðjusamlag

Húsavíkur

Grandi

HB

SVN

Skagstrendingur

SR-Mjöl

ÚA

SÍF

Þormóður rammi

Eskja

ÍS

Jökull

Samherji

SH

Vinnslustöðin

Þorbjörn

Guðmundur

Runólfsson

HG

Krossanes

HÞ

Tangi

FMB

LoðnuvinnslanInternational Seafood Stock

Exchange in Iceland?

Sources: Nasdaq OMX Iceland, Arion Bank Research

Then…something happened

8

34

8 8 8

14

21

24

18 18

1312

9

6

3 3

1 1 1 1 1 1 1 12 2 2

0

5

10

15

20

25

30

Number of listed fisheries companies on The Iceland Stock Exchange

Sources: Nasdaq OMX Iceland, Arion Bank Research

The Breakup

9

• The fisheries sector overshadowed by the

pharmaceutical sector and later the financial sector

• Little interest among traditional institutional

investors

• Negligible research coverage

• Rationalization and underlying operational

improvement left unnoticed by the investor

community

• Lack of visible investor support for rational while

politically difficult management decisions

• Poor performance of fisheries stocks, especially

relative to pharmaceutical and financial stocks

• Real and perceived political instability surrounding

the TAC system

• Quarterly reporting and IR considered time

consuming and of little value for the companies

• Little free float

• Ownership tightly held and shares illiquid

• Concerns among management to loose control of

companiesSources: Media Reports, Annual Reports of Fisheries Companies, Arion Bank Research

The Breakup

10

• The fisheries sector overshadowed by the

pharmaceutical sector and later the financial sector

• Little interest among traditional institutional

investors

• Negligible research coverage

• Rationalization and underlying operational

improvement left unnoticed by the investor

community

• Lack of visible investor support for rational while

politically difficult management decisions

• Poor performance of fisheries stocks, especially

relative to pharmaceutical and financial stocks

• Real and perceived political instability surrounding

the TAC system

• Quarterly reporting and IR considered time

consuming and of little value for the companies

• Little free float

• Ownership tightly held and shares illiquid

• Concerns among management to loose control of

companies

10 most common reasons for a breakup - according to Phsycology Today

1. Trust Issues2. Different Expectations

3. Moving Through Life at Different Speeds4. Compatibility Issues

5. Communication Issues6. Narcissism

7. Relational Abuse 8. Life Habit Abuse

9. Grown Apart, Boredom, Staleness, Rut10. Money Issues

Sources: Media Reports, Annual Reports of Fisheries Companies, Psychology Today, Arion Bank Research

A very private sector

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Neither the public nor institutional investors have opportunities to invest in domestic fisheries

Icelandic Fisheries Companies: Composition of Interest Bearing Debt

- Arion Research´s estimate

Domestic banks Foreign banks Capital Markets

Equity Ownership of Icelandic Fisheries Companies

- Arion Research´s estimate

Private Publicly listed Other

Sources: Statistics Iceland, Bank Annual Reports, Arion Bank Research

Total assets of pension funds six times the size of long term funding

of Icelandic fisheries companies

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With net pension fund inflow around 100 b.ISK and 5-6% annual growth of the pension fund system, there should be ample appetite for investing in seafood

0,0

1,0

2,0

3,0

4,0

5,0

6,0

7,0

Pension fund assets to total long term funding in Icelandic fisheries companies

Total Assets of Pension Funds/Long Term Debt and Equity of FisheriesCompanies

0%

50%

100%

150%

200%

250%

300%

350%

400%

19

97

20

01

20

05

20

09

20

13

20

17

20

21

20

25

20

29

20

33

20

37

20

41

20

45

20

49

20

53

20

57

20

61

20

65

Total assets of Icelandic pension funds- of GDP

Scenario

Sources: Central Bank of Iceland, Arion Bank Research

Fisheries, energy, tourism…

13

The significant other picks up the baton

10,9%

4,8%

3,5% 3,1%2,3%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

2016 2017 2018 2019 2020

Exports- growth contribution of components

Ships and aircrafts Aluminum Marine products

Other Services Exports (YoY growth)

0

20

40

60

80

100

120

2010 2011 2012 2013 2014 2015 2016 2017

Other exports- bn. ISK, constant exchange rate

Manufacturing goods other than aluminium Medical products

Silicon metal Fish farming

Food and beverages Petrolium and petrolium products

Animal products Fishing equipment

Sources: Statistics Iceland, Arion Bank Research

Conclusion

• Private companies – bank funding

• Rationalization and operational

improvement

• The Crash of 2008 was reality check

for domestic investors

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• More coverage

• Stronger popular attachment

• Better popular understanding

• New generation, new opportunities

• Wave of public listings two decades

ago – listed company in every fjord

• Soon overshadowed by other sectors

• Lack of investor interest, knowledge

and appetite

• Financial and operational strength has

been recognized

• Core domestic business –

underexposure by domestic institutional

investors

• Lesser economic dependency on

fisheries – less complicated investment

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